Crude oil moments and PNG stock returns

- We examine risk-neutral moments of crude oil and stock returns in the PNG industry.
- PNG stocks are found to be negatively related with crude volatility.
- Crude oil skewness and kurtosis share a positive relationship with stock returns.
- Large cap stocks have higher negative loadings on crude volatility.
- We find evidence of a weak pricing of crude oil skewness.

We examine the risk-neutral moments of crude oil and their relationship to stock returns in the Petroleum and Natural Gas (PNG) industry. We find substantial overlaps in the association between returns and S&P 500- and crude oil higher moments. Net of these overlaps, PNG stocks share a significant negative relationship with crude volatility and positive relationships with crude skewness and kurtosis. Large cap stocks and those with a history of hedging exhibit negative loadings on crude volatility. However, after controlling for S&P 500- and crude oil returns and their risk-neutral moments, there is little evidence that PNG stocks systematically and significantly price either S&P 500- or crude oil volatility. We document a weak pricing of crude skewness, but find no evidence for the pricing of the implied higher moments of market returns.